Using Uber to understand the Airbnb challenge
20 NOVEMBER 2015 7:28 AM
Hoteliers should look at the impact Uber has had on the traditional taxi industry to learn more about how to co-exist with Airbnb.
In late July 2015, Ontario taxi cab and limousine drivers filed a class-action lawsuit against Uber seeking over $400 million in compensatory and punitive damages. This marks one of the latest in a long series of opposing activities against this game-changing and rapidly proliferating company. Putting aside personal judgments on this case or any preceding one, I can’t help but think of the parallels this has with Airbnb and its disruptive impact on the hospitality industry.
Even though they exist in mutually exclusive spaces, a snapshot comparison between the two organizations yields uncanny similarities. Both founded around 2008-2009, they now operate on a global scale with valuations in the tens of billions of dollars and strong growth fueled by mounting consumer acceptance and new product offerings. Uber is a usurper to traditional car services while Airbnb challenges traditional accommodations, and yet they are both largely mobile and urban-centric with flawless apps and two-way user review accountability checks.
With so much in common, would it be reasonable to also say that Airbnb’s legal foibles might follow a similar path as Uber? More importantly, what can we, as hoteliers, learn about how traditional car services have fought back against and adapted (or not) to this ferocious new entrant? Can hotel properties coexist with this highly unregulated, free market enterprise or are we on the path of extinction?
Sharing economy or taking economy?
The phrase ‘sharing economy’ is what’s used to describe this new market shift away from traditional forms of service and transaction. In other words, the old rules are out the window, the playing field has been leveled and practically anyone can ‘share’ their goods (cars, apartments, parking spaces and so on) for a profit, all through a simple, user-friendly website and with minimal precedents to entry.
These sharing economy systems, Airbnb and Uber included, let buyers and sellers meet on the open market where decisions can be made on the fly and without serious penalties. To me, this sounds more like the ‘taking economy,’ since it lets consumers say to themselves, “Hey, I’ve got a smartphone and I want everything without lifting a finger, damn the consequences.”
Airbnb (and other companies with this non-traditional modus operandi) now pose perhaps the single greatest threat to the hospitality industry. From quaint beginnings as a website mainly for couch-surfers and backpackers, the company has emerged in the past few years to offer accommodations that rival every hotel in the world. They still have plenty of products targeting the low end, but they also have ultra-luxury houses and condominium units available for booking as well as an impressive corporate travel program.
Think of what you go through to set up and sustain your commercial enterprise: occupancy permits, employee background checks, health inspections, fire alarm testing and so on. Airbnb has almost none of that, serving to disrupt an established system that not only protects the consumer from harm but also employs a lot of people across multiple fields in the process.
Next, consider what your city is losing in destination tax levies as well as state and property taxes. Think about how all that money cycles back through the local economy in the form of infrastructural upgrades, urban renewal, capital for new attractions and support for tourism bureaus. In the short run, endorsing Airbnb may translate into heightened travel to a region due to increased room supply, but thinking long-term (years or decades from now), without large-scale periodic upgrades shepherded forward by governmental institutions, a municipality’s incoming traveler numbers may go into decline.
Yes, left unchecked, we are all expecting significant erosion to the traditional accommodations market as a result of these sharing economy outfits–the model is too enticing not to draw away members of our target consumer set. But there are other, more selfless reasons beyond the four walls of your property for you to join the fight. Neighborhoods need constant repairs, and without proper taxation to spearhead this upkeep, a ‘tragedy of the commons’ situation is likely to ensue. A good first step is to recruit your CVB or local hotel association to see what can be done as a collective on behalf of the district.
Rise to the challenge
While these above paragraphs may appear to be wildly anti-Airbnb, it is better to give this the glass-half-full perspective. That is to say, no matter what courtroom rulings or injunctions occur within the next decade, Airbnb is here to stay–it’s too entrenched and its gig-based exchange structure is too perfectly aligned with our capitalistic systems for it to dissolve.
Moreover, have you tried Airbnb? It’s actually pretty great! The website and app work flawlessly, and they have some truly remarkable rooms available. There’s a reason why it’s passed the billion-dollar valuation mark within the first decade of its existence, and it’s because it gives customers what they want. Try it for yourself to see. And rather than wait for external actions to correct the issue, you best treat this company as a legitimate, bona-fide competitor to your business.
Bringing it back to the current state of affairs for taxis versus Uber, you could make the argument that these cab services have done it to themselves. Uber beat them to the punch in terms of a developing a fluid mobile app that allowed for wallet-less transactions, GPS location tracking, better accountability via a driver-rider rating system and oftentimes cleaner interior vehicle cabins. What have taxi companies done to augment their product offerings since the arrival of Uber? What would compel, for example, a millennial with the Uber app on his or her smartphone to go back to the old ways of calling a cab?
Instead of complaining about Airbnb, this is your opportunity to rise to the challenge. Make your property the best it can possibly be and wholeheartedly authentic to your territory so that there is no question in the consumer’s mind as to who provides the best choice of accommodations. Just as third-party review sites have shined a spotlight on all of our operational deficiencies, so too is Airbnb forcing us to improve our products. In my mind, there’s only one solution to this sharing economy problem, and that is to be better hoteliers.
Larry Mogelonsky is the founder of LMA Communications Inc., an award-winning hospitality marketing agency. He’s also a member of Cayuga Hospitality Consultants, G7 Hospitality and Laguna Strategic Advisors. He has published three books including “Are You an Ostrich or a Llama?”, “Llamas Rule” and “Hotel Llama”.
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